Pending home sales fall in the first month of the year

Amanda Fung
·2 min read

Pending home sales, a leading indicator of the health of the housing market, plummeted in the first month of 2021.

The National Association of Realtors’ (NAR) Pending Home Sales Index, which tracks the number of homes that are under contract to be sold, fell 2.8% in January from the previous month — missing analysts’ expectations of no change, according to Bloomberg. Despite the dip in activity, year-over-year contract signings rose 13% from the same month a year ago — marking the highest level for the month of January.

“Pending home sales fell in January because there are simply not enough homes to match the demand on the market,” said Lawrence Yun, National Association of Realtors’ chief economist, in a press statement. “That said, there has been an increase in permits and requests to build new homes.”

The only region in the U.S. to record a modest gain in contract signings last month was the South, while the three other major regions fell from December. But all four areas saw contract transactions increase from year-over-year, resulting in the all-time high for pending home sales in January, according to the NAR.

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While historically low interest rates and pent-up demand have lifted housing activity, constraints in inventory have hampered what has been a healthy housing market. Inventory, the number of homes for sale, reached an all-time low of 1.04 million in January, down 1.9% from December and down 26% from a year ago, according to the NAR.

“Payback from the pandemic-driven surge, scarce inventory and worsening affordability are all likely weighing on sales,” said Nomura in a research note prior to the results.

Home price growth rose at the fastest pace since 2013 in December, according to new data from the S&P CoreLogic Case-Shiller national home price index released earlier this week.

While Yun is optimistic about future construction helping to alleviate supply issues, other experts remain cautious. Permits for future homebuilding rose to 10.4% to a rate of 1.881 million units in January from a month earlier; however, housing starts fell 6% from December and 2.3% from January 2020.

“The mixed construction figures — even if they prove to be temporary and builders continue to find ways to overcome their obstacles — prove that the industry is not immune to setbacks and hiccups, even as it remains a key driver of economic growth,” Zillow Economist Matthew Speakman noted in a press statement last week.

Correction: The National Association of Realtors revised earlier months' data so the drop in pending home sales in January was not the straight fifth month of declines. This article has been updated.

Amanda Fung is an editor at Yahoo Finance.

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